A disheartened Musk, a plummeting Tesla, "In the storm, even the strongest ship can encounter troubles."

Rising interest rates, a slowdown in the economy, and declining profitability have all contributed to Tesla's lackluster third-quarter performance, with the company falling short of Wall Street's expectations in terms of gross margin, profit, and revenue.

During the earnings call, CEO Elon Musk appeared particularly frustrated and angry, stating that the high interest rate environment has had a significant impact on car sales. He also mentioned that the economic outlook will be further evaluated before proceeding with the construction of the Mexican factory, and emphasized that even a strong ship like Tesla can encounter troubles in a storm.

Following the release of the earnings report, Tesla's stock price fell by approximately 4.8% on Wednesday and continued to decline after hours, currently down over 2%.

Bleak prospects for profitability due to price cuts and Cybertruck

According to the earnings report, Tesla's revenue in the third quarter of this year was $23.35 billion, a year-on-year increase of 9%, the slowest revenue growth rate in three years, and lower than analysts' expectations of $24.06 billion. Both gross profit and net profit were also lower than analysts' expectations. The GAAP gross profit margin was 17.9%, marking the third consecutive quarter of decline and falling below market expectations each quarter.

In the third quarter, the average selling price of Tesla vehicles was approximately $44,000, a year-on-year decrease of about $10,000, but sales volume increased by about 45% compared to the same period last year. The price cuts had a significant impact on sales.

However, Musk believes that despite the aggressive price cuts in the third quarter, the high interest rates have greatly reduced the stimulus to consumers. He believes that although Tesla has lowered prices several times, the increase in car loan interest rates means that the price of the Model Y model has "hardly changed" for consumers:

"If interest rates remain high... it becomes much harder for people to buy cars. They simply can't afford it." "I am concerned about the high interest rate environment we are in. It cannot be emphasized enough... the majority of people buy cars based on monthly payments."

Musk's attitude towards the highly anticipated new model, the Cybertruck, is also pessimistic.

The Cybertruck is seen as a key model that will drive Tesla's future growth, following the Model 3 and Model Y, and has experienced several delays. It has just begun trial production at the Texas factory and is expected to start delivering the first batch on November 30.

According to Musk, one million people have already pre-ordered the Cybertruck, but he stated that increasing production of the Cybertruck will be "extremely difficult," and Tesla may only be able to deliver 250,000 Cybertrucks per year, which may not be achieved until 2025. He warned that it would take at least 18 months for the Cybertruck to become a "significant positive cash flow contributor".

Changes in the Mexican factory construction plan, Musk says further evaluation of the economic outlook is needed

In addition, Tesla's plan to build a car factory in Nuevo León, Mexico, announced in March this year, also faces uncertainties. According to local government estimates, this plan will cost more than 50 million US dollars.

However, when asked about the details of the factory, Musk said:

"The bankruptcy of General Motors and Chrysler in 2009 left a trauma on me. I don't want to enter an uncertain state at the fastest speed."

The underutilization of the new factory's production capacity, the increase in operating expenses related to the Cybertruck, and the expenditure on artificial intelligence and other projects have all affected Tesla's profit margin. Musk said the company will continue to reduce production costs to improve profitability. It may be wise to postpone the construction of the expensive Mexican factory.

Not only Tesla has chosen a conservative approach, other companies have also done the same: General Motors announced on Tuesday that it is considering delaying a $4 billion factory upgrade plan due to factors such as demand for electric vehicles and profitability. Ford also recently announced a reduction in the production of its F-150 Lightning electric pickup truck.

However, although Musk acknowledges that the construction of the Mexican factory has been affected by economic trends, he remains relatively optimistic about the full-year delivery volume in 2023, maintaining the delivery target of 1.8 million vehicles. This means that Tesla will need to deliver at least 475,000 electric vehicles in the fourth quarter, and the price war may need to continue.